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Socialism is not the right course. I smell tyranny on the horizon. Get involved small biz owners, join a Tea Party in your area and make them listen up.

Hooray for Senator Gregg, and shame on the rest of the system for backing Obama’s crazy policies. Every 70-80 years, going back for centuries, this country has faced a debt crisis due to culmination of over-optimism in the credit markets. The right course, though painful, is to let the bad debt unwind, and start over. While I realize I am talking about a depression, propping the system up through even more debt only delays the inevitable, until an even bigger bubble bursts. You cannot compare today’s national financial scenario with the 1930′s in a literal manner. Unlike the days of FDR, we already have a huge overhang of public and private debt, as well as a population that is aging. The largesse of bailing out every big shaky institution and providing gold standard public assistance to the aged (high Social Security pensions and rich Medicare benefits) is simply not affordable. This is true both from the standpoint of the enormous debt we have already accumulated, as well as the evolution of democraphics toward a society with fewer workers producing taxable goods and services.

While I believe Obama is sincere in his beliefs, and genuinely wants to solve problems, his solutions are guaranteed to produce more trouble down the road, even if they offer a temporary respite. This is not the case only in national macro-economic affairs. His foreign policy is simply abysmal. By “playing nice” with the rogue Arab states, he is in effect saying there will be no consequences for violent behavior. You can see this in several ways, from his no-conditions willingness to meet with the madman of Iran, to his refusal to speak out loudly against illegal Arab settlements within Israel. He is under the delusion that you can reason with maniacs. The Arabs will play him for the fool he is, and Israel, realizing that it no longer has a reliable partner in the US, will (and already is) turning to central Europe for allies. The Europeans are much more intolerant of Arab extremism than we are, and Germany of all places is leading the charge toward rapproachment with Israel (joint cabinet meetings, planned joint military exercises, etc.). What happens when Chancellor Merkel, who I believe is well intentioned, is replaced by her successor? While Merkel is nominally a member of the conservative wing, she does not represent the kind of “closet fascism” that is so prevalent in German right wing politics (as well as much of the rest of central Europe and the Balkans). I think the Israelis are going to suffer a terrible backstab from placing so much trust in a society whose real attitudes have not changed much since the 1940′s.

The stupidity of Obama’s foreign policies truly boggles the mind. Nobody can even run for President of Iran without being vetted by the mullahs. In other words, you have to prove you’re a thug to even put your hat in the ring. The current president of Iran is doing everything from funding insurgents to kill our soldiers in Iraq, to sharing nuclear secrets with North Korea’s “Dear Leader”. And Obama wants to sit down with Ahmadinejad for tea and crumpets. Both Iran, and the rest of the radical Arab world, can only interpret this one way: the US is weak willed, and will do little if anything to punish offensive states for their atrocious behavior.

Regarding Sandy’s questions, substantive government bankruptcy is a real possibility. While the government can of course print money if China and the Gulf states refuse to roll over their treasuries, there will be hyperinflation rendering any of your own long term fixed rate debt securities worthless, since production of real goods and services won’t be able to keep pace with the printing press. Buying gold is just gambling, as unlike certain other metals (such as silver), it has few industrial applications from which to gauge whether demand will outstrip supply, and thus you can’t predict its future price with any reliability. Foreign currencies are an equally unreliable gamble. Many countries, both industrialized and not, are going through severe financial crises, and many may ultimately be forced to debauche their currency (print money in large quantities) to nominally pay their debts off. In such case, your investment would become worthless. Hiding money in your mattress is great at the moment, as inflation is near zero and you are taking no credit risk. Prediction: this won’t last for long. The enormous deficits Obama is building up will not lead to productivity improvements that will increase the tax base enough to liquify the added debt burden in “real money”. The government will eventually have to start printing money like crazy, and your “mattress assets” will vaporize as you sleep on them.

I do not have an intimate knowledge of your personal financial situation, so I cannot offer highly targeted advice. I can only speak in general principles. First, as I’m sure you’ve gathered, I am strongly against long term fixed rate debt as an investment vehicle at the current time. Your ultimate safety would reside in US Treasuries with a duration of one year or less; the problem here is that they are currently paying an interest rate that is about zero. For your non tax deferred investments (non IRA), the best choice depends on your federal tax bracket. Long term (5 years or more) bank CD’s are a good choice if you are in a low federal tax bracket, because you can usually terminate them with only a three to six month penalty, and get about 4% interest at current (the low termination penalty lets you reinvest in a new CD at a higher return if interest rates rise without taking a big loss to make the switch). They are completely safe as long as the bank is FDIC insured and your deposit is less than $250,000. If you are in a high federal tax bracket, highly rated municipal securities are probably a good bet, as long as the duration is short (say, two years at most). Durations lower than two years pay almost nothing, and longer durations are very risky due to potential loss of liquidity if interest rates rise (which I guarantee will happen once Obama cuts down the Amazon and starts printing greenbacks). High quality two year municipals will yield a little over 2%, will be free of federal tax, and possess low liquidity risk. For your tax deferred investments, TIPS (Treasury Inflation Protected Securities) might be attractive. They pay a fixed annual coupon of 2%, and the principal is adjusted at regular intervals to account for inflation. In effect, you receive a 2% coupon, plus(minus) the inflation(deflation) rate, on a compound basis. If there is deflation, your principal is guaranteed not to go below your original investment. Outside of an IRA, the inflation adjustments are taxable annualy, even though you are not receiving them until maturity. In an IRA, you don’t have this issue. Since TIPS yields are tied to inflation, and not to market interest rates specifically, there is some liquidity risk, but it is not excessive, as interest rates and inflation tend over time to move in lockstep. TIPS with about a five year maturity will be reasonably non-volatile, and currently yield about 4% (2% coupon plus the inflation adjustment).

Once the bubble really bursts, there will be tremendous opportunties in well chosen common stocks. There are still alot of minefields out there that we haven’t faced up to yet: paying off the federal debt, the impending defaults on credit card portfolios, LBO time bombs that will explode as the recession wears on, and about $500 billion of toxic debt still in bank portfolios that is being held at par value on their balance sheets. When the realities ALL become common knowledge, the stock market will absolutely implode. The buying opportunities will be in stocks that have little debt, no need for external financing (in other words, they can fund capital expenditures through operating cash flow), and provide necessities that play to demographic and other trends that will endure for decades. An example is very well managed drug companies, like Johnson and Johnson. Their inventions receive 17 year patent protection, they produce mountains of free cash flow, and the population will be aging for decades (making their products all the more in demand). If the company can grow its free cash at say 10-15% per year, and you can buy the stock at a multiple of say 2-3 times free cash per share, if you are patient, you can make an absolute killing. It may take a decade for the market to recover, so don’t expect any quick profits. But ultimately, investments of this type can make you rich if you are very patient, and have a very, very strong stomach (J & J might even have something for that .